Oracle To Pay $1.9B For Taleo, Extends SAP Rivalry

Published February 9, 2012 8:09PM (EST)

NEW YORK (AP) — Oracle Corp. is escalating its rivalry with German business-software maker SAP AG with a $1.9 billion purchase of Taleo Corp., a company that helps businesses hire and manage their employees.

The proposed purchase announced Thursday extends Oracle's offerings in a growing arena of computing known as the cloud. With such an approach, businesses don't run software and services in-house. Instead, those tasks are dispatched over the Internet to remote locations operated by companies such as Oracle, SAP and IBM Corp.

Oracle, which is based in Redwood Shores, Calif., pounced on Taleo just two months after SAP struck a deal to buy a similar Silicon Valley software service, SuccessFactors, for $3.4 billion. It also comes as another rapidly growing company called Workday is emerging as a cloud-computing threat in human-resources software.

"It's a defensive measure to some extent," Forrester Research analyst Paul Hamerman said.

Oracle said Taleo's portfolio of products would complement Oracle's existing offerings.

"Human capital management has become a strategic initiative for organizations," Thomas Kurian, an executive vice president at Oracle, said in a statement.

Taleo, which has about 1,400 employees, said it has more than 5,000 customers, including nearly half of the Fortune 100. Through its software, people can apply for jobs and companies can manage the careers of their hires. The company, which is based in Dublin, Calif., lost $14.5 million on revenue of $309 million last year.

Although Oracle has moved into the hardware business with its 2010 purchase of Sun Microsystems, software remains the company's core and accounts for two-thirds of its revenue. Oracle has been steadily expanding into different software niches by buying more than 75 companies during the past eight years. It completed a $1.5 billion acquisition of RightNow Technologies two weeks ago. The Taleo deal is expected to be completed in the middle of this year, if Oracle can gain the necessary regulatory approvals.

Many of Oracle's recent acquisitions are of companies that specialize in delivering software and services over the Internet. Oracle and other advocates of cloud-based computing are trying to convince customers that they can save money that way by avoiding costs associated with installing and maintaining products on individual machines.

Until recently, Oracle had resisted such an approach, partly because it makes so much money from maintaining and upgrading software installed on individual computers within its customers' office. Oracle's outspoken CEO, Larry Ellison, had cast doubts about whether cloud computing would produce enough profits to justify heavy investments needed. At a shareholders meeting in 2008, Ellison called it "ludicrous ... that cloud computing is taking over the world."

Hamerman said the acquisition of Taleo puts Oracle "back in the game" for cloud-based recruiting and talent-management software.

Oracle is paying $46 a share for Taleo stock, 18 percent above Wednesday's closing price of $38.94. Taleo's stock rose $6.70, or 17 percent, to $45.64 in afternoon trading Thursday, after the announcement came out. Oracle's rose 11 cents to $28.84, while SAP's gained 67 cents, or 1 percent, to $64.20.

Taleo will give Oracle another weapon in its duel with SAP as their long-running battle spills into cloud computing. Their respective purchases of Taleo and SuccessFactors underscore the growing importance technology companies see in delivering software over the Internet.

Rick Sherlund, an analyst at Nomura Securities, said the planned acquisitions of smaller companies by Oracle and SAP underscore their strategies of "moving to the cloud to address faster growth market opportunities." He said the industry should expect further consolidation.

SAP's specialty is business applications, such as those used for payroll and managing relationships with customers and suppliers. In recent years, Oracle has spent billions of dollars pushing into that field, though it remains behind SAP.

One of Oracle's biggest coups in its expansion came in 2005 when it closed an $11.1 billion takeover of PeopleSoft, which had fought to remain independent. After Oracle prevailed, PeopleSoft co-founder Dave Duffield left to start Workday, which is expected to pursue an initial public offering of stock this year.

Hamerman believes It would be a good timing for a Workday IPO, given the prices that Oracle and SAP have paid for companies in the same market as Workday. Oracle is paying about six times Taleo's annual revenue while SAP is buying SuccessFactors for about 10 times its annual revenue.

The feud between Oracle and SAP has gotten personal. Oracle won a $1.3 billion jury verdict against SAP in 2010 over the widespread theft by a now-shuttered SAP subsidiary of documents from password-protected Oracle customer websites. Oracle alleged the information was used to steal business.

A judge later threw out the award, calling it "grossly excessive." This week, Oracle turned down a smaller award of $272 million, paving the way for a retrial with a different jury.

Oracle landed a publicity jackpot from the trial. Ellison used it to repeatedly shame SAP publicly. SAP admitted the theft and agreed to pay $20 million to settle criminal charges filed by the Department of Justice over the practices at the former subsidiary, TomorrowNow.


AP Technology Writer Michael Liedtke in San Francisco contributed to this report.

By Salon Staff

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